With the Dow Jones industrial average flirting with a record high, the split between American workers and the companies that employ them is widening and could worsen in the next few months as federal budget cuts take hold. …

“So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

If President Obama really wants to show leadership, he will seize this moment and propose a reduction in corporate tax rates, so that corporations will have money to invest and hire and raise salaries and wages.

I think we need to consider foreign sales as a part of the equation, and a rebound in things like oil prices. Those are related to recovery, but not necessarily shared with workers. Raise the minimum wage, and cut the corporate income tax in exchange, then workers get a share, and profitable companies might not lobby against a wage hike.

The fact remains, rusty, that the corporate tax rate is not the reason why corporations are not investing and hiring more. But when you’re on autopilot from the ’80s, as Brooks is, you don’t feel the need to do anything more than just spit out ’80s cliches.

Corporations are not hiring cause there is not enough demand for their stuff. That demand is now declining again with our shrinking deficit and higher taxes. My guess is 75% chance of recession first half of this year.

Simply raising the corporate income tax shares nothing with workers, mmcosker, except those workers who will be laid off as a direct or indirect result of more severe budget cuts imposed instead of higher corporate taxes.

Closing the laundering-profits-through-offshore-shell-entities thing would be helpful–and wouldn’t hurt very many mom-and-pop corporations. Although some corporate persons do have offspring, I guess.

Not sure how raising a marginal tax on net income causes a company to have to lay off workers.

I could buy an argument that there would be some amount of future investment that would be foregone, although I’m not sure that’s a defensible claim as long as capital gains rates are as low as they are either.

Not only has the share of income that goes to labor as opposed to capital been dropping, but the fraction of that part of the pie, the part that goes to labor is skewed towards the upper quintiles by massive CEO compensation and the entertainment/sports industries. It is interesting that when we talk about the divisions between capital and labor from a corporate governance perspective, the top executives of a company are placed on the side of ownership, management.

But statistically, when we talk about how the economy is divided between wages and income from capital, the executive class and their salaries are put into the column that counts as labor! There is something that is on the order of “heads I win, tails you lose” to the way that is counted. The Kansas City Fed did a study looking at where productivity gains had gone over the past several decades. It found that although gains in productivity had been shared relatively equally between income from labor and income from capital, it was only the very highest income levels of labor that have gained over the past thirty years. The gains have been limited to a thin layer of scum at the top.

maybe you are right: suppose the government just prints the money and hires the unemployed to do work that we need done.

the workers spend this money into the economy… creating more demand without more supply (the government is not paying these workers to increase the supply of consumer goods… at least at a first approximation).. this leads to a rise in prices

which we might as well call inflation.

but here’s the deal… this “inflation” is actually a “tax” on those who previously had jobs and could buy the “goods” at the then lower prices. now they are paying a higher price… which turns into wages for the previously unemployed.

i don’t see a problem with that.

except, of course, politically.

oh, the reason i don’t see a problem with that is that i expect “consumption” to go down as we run out of resources other than cheap labor. paying higher prices would be the natural consequence if the money supply did not decrease along with the supply of goods and services. by increasing the money supply, you increase prices, but the net result is that consumption is shifted from those who have more to those who have less… which is, to a first approximation, more equitable… or decent, as we used to say.

(please note, it is of course possible that that extra money in the economy will “stimulate” some productive investment that increases the supply of something.. that we are willing to pay (more) for. it hardly matters whether that something is faster cars or rare and nifty orange feathers for the hats of those who can afford them. of course i’d like to see the money spent on fine crafts, but what do i know.

the workers spend this money into the economy… creating more demand without more supply (the government is not paying these workers to increase the supply of consumer goods… at least at a first approximation).. this leads to a rise in prices

Bzzzzt – there is currently unused capacity – people unemployed and factories out of business. When demand increases, supply of consumer goods can increase WITHOUT any rise in prices, until that capacity is back in play.

I am also all for raising taxes… a small amount to pay for Social Security. A similar amount, though larger as a percent change, to pay for Medicare, And a “progressive” amount to pay for “the deficit” until the deficit is no longer a political factor.

(hint. “no longer a political factor.”)

what I have been arguing against here, i think, is mcwops claim that the government can just print money and we will all live happily ever after without working… because of course the government can just print the money we need.

I am not claiming we just print money without any regard for inflation – inflation is the constraint, and I have stated this.

We need to print an amount necessary to compensate for:1) Growth in aged demographics 2) Growth in the general population3) Offset the trade deficit 4) The unemployment rate

All with acceptable rate of inflation. Targeting 2% as a maximum acceptable inflation rate is austerity – which is where we are at.

I also presented the fact that taxes have been raised by 4 of the last 5 presidents since and including Reagan. Even after George Junior’s tax cuts, rates were higher than his dad’s. So you can raise taxes – even Republicans can.

So where are we now, high unemployment and politicians including democrats trying to cut the budget – including social security.

I think with SS we may be talking past each other. I think we might be in agreement, but using different terms to describe what is happening. In my introductory post I responded to how I think the mechanic is working where deficit spending is our savings. When SS IOU’s are cashed in, the deficit spending returns that savings back to the economy. This is a good thing. Worthy of more discussion, maybe we can triangulate a post that nobody could argue against.

“Corporations are not hiring cause there is not enough demand for their stuff. That demand is now declining again with our shrinking deficit and higher taxes.”mmcosker(mcwop?)

The answer to many complex problems is often lots simpler than would be described by the experts, whomever they may be. Take the lack of demand which is proportionate to the lack of income, otherwise known as financial wherewithal. That relationship between economic demand and prosperity was highlighted early in this century by Henry Ford, the one who actually did “build something.” He wasn’t a nice guy. True enough, but I’m not talking about his various personality flaws and social philosophy at the moment. He understood one important economic model. That being that the income of the masses is directly proportionate to the income of the producers. Pay the workers more and they will be able to buy more stuff, and possibly pay more for the stuff that they buy. And in order to produce that stuff they will hire more workers. Of course there is the out sourcing problem to contend with. Henry didn’t know that guys like Peter Peterson and the rest of the Nixon crew would years later sacrifice American workers for the good of their personal fortunes and the friendship of Asian tycoon commissars.

But still the first half of the solution is demand. Fix that in two steps. More money in workers’ pockets and more workers on the home shores. Very wealthy Asians are good for the RE market in NY, but their workers don’t buy our stuff.

It works like a charm. It’s simple. It doesn’t even require CBO or OMB scoring of future impact. A healthy economy is money in circulation, and best done so through a great many hands.

“When SS IOU’s are cashed in, the deficit spending returns that savings back to the economy.”

no. when the money was borrowed from SS, that money went directly to the economy in the form of more “government” spending. that’s what the government does with the money it borrows.

when the iou’s are cashed in that money goes to pay for SS benefit checks… which are immediately spent into the economy…. and is not in any case “deficit spending.”

for it to be deficit spending, the spending would have to exceed government income. but the iou’s (bonds) are paid with either taxes (income) or borrowing from other lenders… a net wash as far as debt is concerned.

i don’t want to hear any nonsense about the difference between “the deficit” and “the debt.”

“the deficit” is a term used by the budget people for their own purposes. they might as well keep their books in terms of “roses” and “galoshes.” for their purposes borrowing money from Social Security is counted as “roses”, and eventually paying back that money to Social Security will be accounted as “galoshes.”

they may have a perfectly good reason for doing their books this way, but since they account income from taxes as “roses” and all expenditures as “galoshes” without… in that set of books… accounting for the fact that income from SS has to be paid back to SS, and that excess of galoshes over roses is “paid for” by borrowing “from the public”… that has to be paid back… just the same as the “roses” from SS… talkng about THEIR books in the context of Social Security or government “debt” is nonsense.

because, as the professor is fond of pointing out, when you do it that way, the “debt” is no longer the sum of prior “deficits.” and that way lies confusion and madness… which is what we have in Washington and on TV.

The confusion regarding debt levels related to Social Security is exacerbated by the mysteries of the “unified budget” which is only a gimmick in the minds of some Treasury officials and elected officials trying hard to confuse the matter. Think of it this way. If the Social Security budget is “unified” with the general Federal budget, regardless of the lawlessness of that approach, the inter-agency debt represented by the Treasury borrowing the excess FICA deductions in a given year is offset by the asset value of the Special Treasury notes issued to account for the debt. At one and the same time the Treasury taketh away and giveth. Net effect is that FICA contributions have paid for government activities as though they were part of a general fund of tax revenue.

When the Trust Fund assets are liquidated in the form of benefits the Treasury does so by selling an equivalent amount of regular Treasuries to the public and private institutions. But because the Special Treasuries have been liquidated the two debt instruments have the effect of equal inflow and out flow, just a new form of debt. There has been no real increase in the debt, but the benefits paid out are now more closely linked to the newly issued general Treasury notes giving some liars a basis for claiming that benefits add to the deficit. In fact the what deficit there is existed at the moment that the excess FICA deductions were used to pay for general government activities, but was hidden by the use of the term payroll taxes as though it were just additional tax revenue.

Yes, it is convoluted thinking, but it is intended to be so. On the one hand the workers’ rertirement funds are being used to offset the budget deficit and at a later time those funds are replaced, but only after the issuance of new general debt to pay off the debt to the Trust Fund. It’s not supposd to be any clearer than that otherwise it would be more easily recognized as a scam. Not a scam as in a Ponzi scheme, but a scam in how a valuable retirement program for workers which is paid for by workers is made to look like both a drain on the general budget after having been used to hide the deficiencies of the general tax revenues. It’s a kind of Rube Goldberg approach to financial planning and general accountiing.